How to Handle an Audit in Accounts Payable

Audits can uncover problems in accounts payable transactions.

The two main activities that take place in an accounts payable department are the recording of invoices in the accounting records and the processing of their payments. To prepare for an audit of your accounts payable department, it’s important to have well-organized accounts payable records and documented policies and procedures of how transactions are handled as they pass through the department. Auditors select a group of transactions that are representative of the entire payable population and analyze items that have a material effect on the accounts payable balance.

Instructions

1. Inform the accounts payable staff of the audit. The announcement of an audit is soon followed by the arrival of the auditor. It’s important that all accounts payable employees are aware of the audit and are prepared to answer questions about what they do and general questions about the department. Ask them to organize their work areas, so that information is readily accessible if it is requested by the auditor.

2. Review your policies and procedures for completeness and accuracy and make adjustments as needed. Accounts payable policies and procedures should be current and reflect current operations. Make any adjustments as deemed necessary and ask other staff members for their input, as needed. If the auditor requests a copy, hand him the older version and inform him that adjustments to the policy are under way.

3. Discuss with your staff any updates of the policies and procedures manual. Review the changes with your staff and make certain everyone understands them. Distribute physical copies of the policy manual or place a "read-only" electronic copy in a computer folder that is accessible by everyone. Make certain that modifications to the document can be made by only one person. Provide the new policy to the auditor.

4. Review your supporting documentation for completeness and organization. This documentation is analyzed by auditors when they perform analytical procedures of transactions to determine if they meet certain criteria. For example, all paid product invoices must have an approved purchasing order and a document identifying the items received. The correct links to supporting documents can facilitate the review of electronic transactions. For manual systems, physical invoices and receiving documents should be attached to paid invoices.

5. Work with the auditor by providing any information requested and addressing any issues that come up. Stay in close contact with the auditor and ask to be informed regularly on the status of the audit; address promptly any additional requests for information. When the auditor completes his work, an audit report is issued with recommendations; these issues are addressed by the department in writing and are included in the final audit report as responses to the recommendations.

References

• City of Berkeley; Accounts Payable Audit; Ann-Marie Hogan et al; Dec. 16, 2003
• Accounting Web; Employee Fraud, Accounts Payable, Double Entry Bookkeeping and the Father of Accounting; Scott H; May 2, 2010

Resources

• Accounting Web; How to Spot Occupational Fraud, Resolve Gaps; Dan Ramey; Nov. 2, 2010